UK Tax Regime: Dialogue the Way Forward

UK Tax Regime: Dialogue the Way Forward

A reconfigured tax regime for the oil and gas sector in the UK is now working to boost production and growth. But dialogue between the industry and the government will continue to be required in order to ensure the tax regime continues to help deliver that growth, according to a panel of experts put together by industry association Oil & Gas UK.

Speaking Wednesday at an event (attended by Rigzone) for oil and gas professionals in London, Oil & Gas UK Economics Director Mike Tholen, Roman Webber, a tax partner at Deloitte, and Nigel Hares, chief operating officer at UK oil explorer EnQuest, all agreed that constructive engagement with HM Treasury since a tough UK Budget for oil and gas in 2011 had helped improve the investment environment for hydrocarbon projects.

While Budget 2011 was a "low point" for the industry, with a 12 percentage point increase in the Supplementary Charge on profits from oil and gas production on the UK Continental Shelf to 32 percent, new measures in the form of allowances have helped to shield small fields, 'brown' fields and shallow-water gas fields from much of this tax.

Schemes such as the recently green-lighted Cygnus gas project have benefited from such measures as a result.

But the oil and gas industry will need to remain vigilant and maintain a dialogue with the UK government at all levels if tax is not to become a barrier to the extraction of hydrocarbons from the UKCS.

Tholen pointed out that the UK is quite different from the more collaborative approach to oil and gas shown in countries like Norway and the Netherlands.

"We truly are a very Anglo-Saxon, adversarial model, where both industry and government are both fighting to get the most [that they can] out of the North Sea," he said, explaining that he expects that adversarial model would likely continue to express itself and that there were signs that the field allowance regime would be exposed to more issues as the North Sea Basin evolves.

"So, I'm afraid, there will be a creative tension and I continue to see changes coming in the regime but I can't tell you what they are yet or what they will be," he said, adding that there would need to be a "continued interaction" between the government and the oil and gas industry.

EnQuest's Hares was insistent that tax should not be an obstacle to oil production and jobs.

"As a basin matures and costs per barrel inexorably go up I think we have to be at a place where the tax take has to drop… Eventually, we want to get every barrel out," he said.

"I see that the environment will keep changing, and the basin will keep maturing. So, I anticipate that we will see extensive consultations between all the stakeholders for the foreseeable future."

Deloitte's Webber added that the complexity of the tax regime in the UK is a feature of how it has evolved and that there was little possibility of ripping up the rules and starting again. 

"Unfortunately, we have a system that has evolved over time and many of the things that are being done now certainly weren't contemplated back in 1975," he said. "So, I think we have to work with what we've got."


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